Factory orders rise more than expected in May

updated 1:29 p.m. ET July 2, 2009

WASHINGTON - Orders to U.S. factories jumped in May by the largest amount in nearly a year, another sign that the nosedive in manufacturing is nearing an end.

The Commerce Department said Thursday that total orders rose 1.2 percent in May, better than the 0.8 percent increase that economists had expected. The April performance was revised slightly lower to a gain of 0.5 percent, from 0.7 percent.

The May increase was the best showing since a 2.1 percent rise last June. The back-to-back increases in April and May were the first consecutive gains in nearly a year.

The May tally reflected a 1.8 percent rise in demand for durable goods, items expected to last at least three years, and a 0.7 percent increase in orders for nondurable products such as food, chemicals and paper.

A 68.7 percent surge in orders for commercial aircraft led the nondurable. But there was also strength in other areas from iron and steel, to industrial machinery and computers.

The troubled auto industry still suffered a decline. Demand for motor vehicles and parts fell 4.6 percent, but total transportation posted a 3.8 percent increase.

Excluding transportation, orders would have risen 0.8 percent, the best showing since last June.

The 1.8 percent rise in durable goods orders followed a 1.4 percent advance in April. It was the best showing since a 4.1 percent surge in December 2007, the month that the recession began.

Analysts saw the back-to-back gains in orders as further evidence that a dismal stretch for manufacturers may be ending. Orders had fallen every month from August through January. Even with the recent increases, orders so far this year are running 23.3 percent below the year-ago level.

The view that manufacturing is on the verge of a rebound received support Wednesday when a report showed a key gauge of manufacturing activity declined less than expected in June. The Institute for Supply Management said its manufacturing index posted a 44.8 reading in June, the best showing since August, a month before the financial crisis erupted with force.

Manufacturing sectors overseas also signaled a bit of a rebound, and sales of U.S. cars and trucks showed signs of stabilizing in June after a year of sharp declines.

While every major automaker except Honda Motor Co. reported lower sales in June, year-over-year declines last month slowed for four of the six major carmakers. Ford Motor Co. reported the smallest drop in a year, a 10.7 percent decline compared with June 2008.

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